Constellium SE Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Constellium Fourth Quarter and Full Year 2025 Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Hershiser, Director of Investor Relations at Constellium.

Thank you, Josh. I would like to welcome everyone to our fourth quarter and full year 2025 earnings call. On the call today, we have our Chief Executive Officer, Ingrid Joerg; and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at constellium.com, and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 10-K. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures. And with that, I would now like to hand the call over to Ingrid.

Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. Let's begin on Slide #5. I want to start with safety, our #1 priority. In 2025, we achieved a recordable case rate of 1.9, an improvement compared to 2024 and much better than the industry average. While we did not meet our ambitious target of 1.5, this progress reinforces our commitment to safety and reminds us that reaching our goal will require continued strong efforts across the organization. Our safety journey is never complete, and we all need to remain committed to this critical priority every day. Now let's turn to Slide #6 and discuss the highlights from our fourth quarter performance. Shipments were 365,000 tons, up 11% compared to the fourth quarter of 2024 due to higher shipments in each of our operating segments. Revenue of $2.2 billion increased 28% compared to the fourth quarter of 2024 due to higher shipments and higher revenue per ton, including higher metal prices. Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal price risk. Our net income of $113 million in the quarter compares to a net loss of $47 million in the fourth quarter last year. The main driver of the increase was higher gross profit in the quarter versus last year. Compared to the fourth quarter last year, adjusted EBITDA increased 124% to $280 million in the fourth quarter this year. This includes a positive noncash impact from metal price lag of $67 million. If we exclude the impact of price lag, which, as you know, is the way we view the real economic performance of the business, we achieved an adjusted EBITDA of $213 million in the quarter. This is a new fourth quarter record for us and is up 113% versus the $100 million in the fourth quarter last year. Our free cash flow in the quarter was strong at $110 million. During the quarter, we returned $40 million to shareholders through the repurchase of 2.4 million shares. Now please turn to Slide #7 for our full year 2025 highlights. For the full year, shipments were 1.5 million tons, up 4% compared to 2024. Revenue of $8.4 billion increased 15% compared to 2024 due to higher shipments and higher revenue per ton, including higher metal prices. Our net income of $275 million compares to a net income of $60 million in 2024. The main driver of the increase was higher gross profit versus the prior year. Adjusted EBITDA increased 36% to $846 million in 2025, though this includes a positive noncash impact from metal price lag of $126 million. Again, if we exclude the impact of metal price lag, the real economic performance of the business reflects adjusted EBITDA of $720 million for the year compared to $575 million we achieved in 2024 and represents our second-best year ever. Moving now to free cash flow. Our free cash flow for the year was $178 million in 2025. During the year, we returned $115 million to shareholders through the repurchase of 8.9 million shares. We reduced our leverage by the end of 2025 to 2.5x, which is at the upper end of our target range. Constellium achieved strong results in 2025 that were ahead of our own expectations coming into the year and despite the uncertain macroeconomic and end-market environment. I want to thank each of our 11,500 employees for their commitment and relentless focus on safety and serving our customers. We delivered strong execution and demonstrated our ability to control costs throughout the year in 2025, and we believe we are well positioned heading into 2026 to capitalize on market opportunities as they arise. With that, I will now hand the call over to Jack for further details on the financial performance.

Thank you, Ingrid, and thank you, everyone, for joining the call today. Please turn now to Slide 9, and let's discuss our A&T segment performance. Adjusted EBITDA of $83 million increased 43% compared to the fourth quarter last year. Volume was a tailwind of $31 million due to higher TID shipments. TID shipments were up 41% versus last year. First, as we continue to see increased demand from onshoring in the U.S. Secondly, we also benefited from higher shipments in Valais following recovery from the flood last year. Aerospace shipments were stable in the quarter versus last year as commercial OEMs continue to work through excess aluminum inventory in the supply chain. Demand in space and military aircraft remained generally healthy. Price and mix was a headwind of $28 million due to unfavorable mix in the quarter, partially offset by improved contractual and spot pricing in Aerospace and TID. Costs were a tailwind of $18 million, primarily as a result of lower operating costs. FX and other was also a tailwind of $4 million in the quarter due to the weaker U.S. dollar. For the full year 2025, A&T generated adjusted EBITDA of $339 million, an increase of 16% compared to 2024. The drivers of the full year performance were similar to those in the fourth quarter, except volume was a headwind of $1 million for the full year. Now turn to Slide 10, and let's focus on our PARP segment performance. Adjusted EBITDA of $136 million increased 143% compared to the fourth quarter last year and is a new quarterly record for PARP. Volume was a tailwind of $19 million in the quarter. Packaging shipments increased 15% in the quarter versus last year as demand remained healthy in both North America and Europe. In North America, we also benefited at Muscle Shoals from continued improvement of operational performance in the quarter. Automotive shipments were relatively stable in the quarter overall, though we did benefit in both regions from the current supply shortages in North America of aluminum automotive body sheet. Price and mix was a tailwind of $15 million, mainly as a result of improved pricing and favorable mix in the quarter. Costs were a tailwind of $40 million, primarily as a result of favorable metal costs given improved scrap spreads and higher metal pricing environment in North America and increased consumption of scrap given the Muscle Shoals improvement, which is partially offset by higher operating costs. FX and other was a tailwind of $6 million in the quarter. For the full year 2025, PARP generated adjusted EBITDA of $353 million, an increase of 46% compared to 2024. The drivers of the full year performance were similar to those in the fourth quarter, though we benefited more in the fourth quarter from favorable metal costs compared to the full year. Now turn to Slide 11, and let's focus on the AS&I segment. Adjusted EBITDA of $5 million increased by $1 million compared to the fourth quarter of last year. Volume was a $4 million tailwind as a result of higher shipments in industry-touted products, partially offset by lower shipments in automotive. Industry shipments were up 33% in the quarter versus last year as we had higher shipments in Valais following recovery from the flood last year. The industrial markets in Europe appear to have bottomed, although they remain at depressed levels. Automotive shipments were down 10% in the quarter with weakness in both North America and Europe. Even though the broad automotive market in North America are relatively stable, our automotive structures business was negatively affected by the current supply shortages of aluminum automotive body sheet and its impact on production of certain platforms in the region, which automotive structures business supplies to. Price and mix was a $6 million headwind in the quarter. Costs were a tailwind of $1 million, primarily due to lower operating costs, partially offset by the impact of tariffs. FX and other was a tailwind of $2 million in the quarter. For the full year 2025, AS&I generated adjusted EBITDA of $72 million, a decrease of 3% compared to 2024. The drivers of the full year performance were similar to those in the fourth quarter, except that volume was stable for the full year. And in the third quarter, we received net customer compensation for the underperformance of an automotive program. It is not on the slide here, but our holdings and corporate expense for the full year 2025 was $44 million, up $11 million compared to the prior year. The increase is primarily due to higher labor costs and costs associated with corporate transformation projects. We currently expect holdings and corporate expense to run at approximately $50 million in 2026. Now please turn to Slide 12. It is not on the slide here, but I wanted to summarize the current cost environment we're facing. As you know, we operate a pass-through business model, so we're not materially exposed to changes in the market price of primary aluminum, our largest cost input. On other metal costs, following the U.S. tariff announcements in 2025, market aluminum prices in the U.S., which includes the LME aluminum price plus the Midwest premium have risen sharply to historical levels. Spot scrap spreads for aluminum, mainly used beverage cans or UBCs have also improved from historically tight levels experienced in the second half of 2024 and into 2025. Both of these dynamics unfolded as we moved through the year in 2025. Given that a portion of our scrap purchases were negotiated previously, we did not benefit much from this dynamic in 2025 until the fourth quarter and the favorable impact was augmented through strong performance at Muscle Shoals in the quarter. As we look at 2026, we expect to benefit from these trends, especially in the first half. Moving on to inflation. Inflationary pressures continue today across operating cost categories, including labor, energy, maintenance and supplies, albeit at more normal levels. Regarding tariffs, we have made some progress on pass-throughs and other actions to mitigate a portion of our gross tariff exposure, and we believe at this stage, our direct tariff exposure remains manageable and the current tariff and trade policies are net positive for us. In terms of the overall cost management, we have demonstrated strong cost performance in the past, and we're confident in our ability to maintain a right-sized cost structure in any environment. On that front, we're pleased today to announce our next group-wide excellence program, which we're calling Vision 2028. This program will target both operational efficiencies and cost reduction across our businesses and is one of the building blocks in our roadmap to our 2028 targets. We look forward to updating you on our progress going forward. Now let's turn to Slide 13 and discuss our free cash flow. We generated $178 million of free cash flow in 2025, well ahead of a very challenged 2024. The increase in free cash flow in 2025 was primarily a result of higher segment adjusted EBITDA and lower capital expenditures, partially offset by higher cash interest. Looking at 2026, we expect to generate free cash flow in excess of $200 million for the full year. We expect CapEx to be approximately $115 million, which includes approximately $100 million of return-seeking CapEx, primarily related to key aerospace and recycling and casting projects we announced previously at Issoire, Muscle Shoals and Ravenswood. We expect cash interest of approximately $125 million and cash taxes of approximately $70 million, and we expect working capital and other to be a use of cash for the full year. As Ingrid mentioned previously, we continued our share buyback activities in the quarter. During the quarter, we repurchased 2.4 million shares for $40 million, bringing our 2025 total to 8.9 million shares for $115 million. We have approximately $106 million remaining on our existing share repurchase program, which we intend to complete by using our free cash flow generated this year. Now let's turn to Slide 14 and discuss our balance sheet and liquidity position. At the end of the fourth quarter, our net debt of $1.8 billion was up approximately $50 million compared to the end of 2024, with the largest driver being the translation impact from the weaker U.S. dollar at the end of the year. We reduced our leverage to 2.5x at the end of 2025, which is at the upper end of our target range. We expect leverage to trend lower in 2026 and to maintain our target leverage range of 1.5 to 2.5x over time. As you can see in our debt summary, we have no bond maturities until 2028. And as of the end of 2025, we had no outstanding borrowings under the Pan-U.S. ABL facility. Our liquidity increased by around $140 million from the end of 2024 and remains very strong at $866 million as of the end of 2025. With that, I'll now hand the call over to Ingrid.

Thank you, Jack. Let's turn to Slide 16 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable and attractive secular growth trends in which aluminum, a light and infinitely recyclable material plays a critical role. Turning first to the aerospace market. Commercial aircraft backlogs are at record levels today and continue to grow. Major aerospace OEMs remain focused on increasing build rates for both narrow-body and wide-body aircraft as evidenced by higher plane deliveries year-over-year and rising delivery ambitions in the near term. Although supply chain challenges have continued to slow deliveries below what OEMs were expecting for several years in a row now, demand is steady for the most part and aluminum destocking in the supply chain appears to be easing. Demand for high value-add products, which is one of our core focus areas remains strong. We remain confident that the long-term fundamentals driving commercial aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. In addition, demand remains stable in the business and regional jet market, whereas demand for space and military aircraft is strengthening. We believe we are a leading provider of proprietary aluminum solutions for those customers in the space and military aviation markets today. As you know, we are investing in additional capacities and capabilities such as our third Airware casthouse in Issoire, which we expect to start up by the end of this year to further strengthen our position in the future. Looking across our entire commercial and military aviation and space businesses, we believe our product portfolio is unmatched in the industry, and we have industry-leading R&D capabilities for aluminum aerospace solutions. Given the visibility over the next several years, we are raising our adjusted EBITDA per ton target for our A&T business to $1,300, which is up from $1,100 that we provided last year. Turning now to packaging. Demand remains healthy in both North America and Europe. The long-term outlook for packaging continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage can, capacity growth plans from the can makers in both regions and the greenfield investments ongoing here in the U.S. We continue to see aluminum gain share against other substrates in the beverage market, and the majority of new beverage products are launched in aluminum cans today due to its sustainable attributes. Aluminum cans are highly recyclable, and we are well positioned to capitalize on the benefits from recycling packaging materials at our facilities in Muscle Shoals and Neuf-Brisach. Packaging markets are relatively stable and recession resilient as we have seen many times in the past. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe, providing a strong baseload for our operations in both regions. Now let's turn to automotive, which continues to be a bit of a different story in North America versus Europe. In North America, demand is relatively stable, though the tariff environment is creating some uncertainties. Last year, one of our competitors' U.S.-based facilities was impacted by fire, a very unfortunate event and which has created an interruption in the aluminum rolled product supply chain in North America. The entire industry continues to mobilize to ensure we limit the impact on our customers. In the fourth quarter, we started to benefit on the rolled product side as we were able to help our customers during this outage. On the automotive structures side, we were negatively impacted as some OEMs were forced to reduce production on certain platforms impacted by the disruption on the rolled product side. The overall impact in 2025 was a net positive on our results, which we expect to continue into the first half of 2026. Automotive demand in Europe remains weak, particularly in the premium vehicle segment where we have greater exposure. European markets are seeing increased Chinese competition and have lowered their battery electric vehicle ambitions. Automotive production in Europe is also feeling the impact of the current Section 232 auto tariffs given the number of vehicles Europe exports to the U.S. Longer term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected. Secular trends such as lightweighting, fuel efficiency and safety will continue to drive the demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions despite the weakness we are seeing today. As you can see on the page, these 3 core end markets represent over 80% of our last 12 months revenue. Turning lastly to other specialties. These markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment, industrial production levels and consumer spending patterns. Industrial market conditions in North America and Europe became more stable in the second half of 2025, and we believe the markets, particularly in Europe, have bottomed after 3 years of market downturn. Nevertheless, we expect the specialties markets in Europe to remain relatively weak in the near term. We do believe TID markets in North America provide us with some opportunities today given the current tariffs make imports less competitive compared to domestic production. We also believe there are some opportunities in land-based defense and semiconductor markets given current market dynamics. In most industrial markets, we are focused on niche high value-added applications. To conclude on the end markets, we like the fundamentals in each of the markets we serve, and we strongly believe that the diversification of our end markets is an asset for the company in any environment. Turning lastly now to Slide 17. We detail our key messages and financial guidance. Our team delivered strong execution and results in 2025 that were well ahead of our expectations coming into the year. Excluding metal price lag, our adjusted EBITDA in 2025 was our second best year ever. We returned $115 million to shareholders in the year with the repurchase of 8.9 million shares, and we reduced our leverage to 2.5x by year-end. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Based on our current outlook, for 2026, we are targeting adjusted EBITDA, excluding the noncash impact of metal price lag in the range of $780 million to $820 million and free cash flow in excess of $200 million. Our guidance assumes the recent demand trends in our end markets that I described earlier will continue into at least the early part of 2026 and the overall macroeconomic environment to remain relatively stable. Looking into the future, we also want to reiterate our targets of adjusted EBITDA, excluding the noncash impact of metal price lag of $900 million and free cash flow of $300 million by 2028. To conclude, we are extremely well positioned for long-term success and remain focused on executing our strategy and shareholder value creation. With that, operator, we will now open the Q&A session.

And our first question comes from Katja Jancic with BMO Capital Markets.

Maybe starting on the '26 guide. Can you let us know how much of a benefit for scrap spreads is embedded in this guide?

Thank you for the question, Katja. Regarding the scrap benefits for 2026, I want to elaborate a bit. We believe it's a positive factor for us in 2026. Our expectation is that, since our scrap consumption needs are fully contracted in the first quarter, we should see benefits similar to those in the fourth quarter of 2025. If you examine the figures for the PARP business unit in Q4 2025, you'll notice that the metal benefits from our European plants and Muscle Shoals more than compensated for some higher operating costs. This resulted in a net impact of $40 million, providing an indication of the benefits we experienced in Q4 2025, which we expect to continue at least into the first quarter of 2026. There's considerable interest in this topic, and it's essential to provide context. The recycling economics are quite complex due to various factors at play, including market conditions, aluminum price levels, scrap spreads, consumption levels, productivity, and types of scrap we procure, beyond just UVCs, which also come in different grades. The situation is intricate, involving a three-dimensional matrix of elements that can either align or conflict with one another. It's also important to note that recycling economics tend to average out over time, a trend observed during more stable market conditions prior to 2024, where annual fluctuations ranged between $20 million to $30 million. This averaging continues even in more volatile periods, such as from 2024 to now. Looking back to 2024, we experienced a significant contraction in scrap spreads and challenges at Muscle Shoals, which resulted in a quarterly headwind of $15 million to $20 million. This headwind compounded over the year. A similar situation occurred in the first half of 2025, particularly pronounced in the first quarter, although conditions improved somewhat in the second quarter as spot spreads tightened. The market in the Midwest also experienced significant increases due to tariffs. Thus, the period from 2024 to the first half of 2025 was particularly tough for us from a metal profit standpoint. However, Q3 2025 stabilized, and in the fourth quarter, we benefited from a favorable environment and strong performance at Muscle Shoals, allowing us to recover losses from the first half of 2025 and then some. Looking ahead to 2026, I've already discussed the first quarter. As for subsequent quarters, we have some volumes open, and we are diligently working to secure additional volumes beyond the first quarter. However, we expect incremental benefits to gradually decrease throughout the year. Overall, we believe we will be able to recover the losses we faced in 2024. That was a lengthy response, but it provides insight into the scrap topic. The key points are that it is indeed complicated, it tends to average out over time, and recycling demands substantial investment and expertise, which we possess from decades of operation. When market conditions are favorable, as they are now, we are well-equipped to seize the opportunities.

Okay. And I understand that it's complicated. But let's say if these scraps stay at the current level. And then looking more to your '28 target of $900 million, it seems that target might be conservative. Can you just remind us how we get there? Or what are some of the moving parts there?

Katja, thank you for this follow-up question. I'll let Jack come in later. But maybe with respect to 2028, I think when we talked the first time a year ago about our bridge, we said we were going to take more conservative assumptions on the metal side. So what you are seeing today is that we are ahead due to metal benefits versus our 2028 target. But obviously, this is a very dynamic market environment and things can change very, very quickly. So Midwest premium can change very quickly and the percentages of spreads can change very quickly, which is why we have taken a conservative assumption in the first place. We don't know if the current situation that we experienced in 2026 are going to last and for how long they are going to last, which is why we have preferred to remain at a more prudent stance and assumption in our 2028 targets.

Our next question comes from Bill Peterson with JPMorgan.

Maybe outside of the scrap spread, I'm trying to get a sense for some other factors within the 2026 guidance. For example, what is your latest thoughts on the aerospace recovery? How much can be attributed to Vision 2028? Any sort of assumptions related to one of the peers in the space with their rolling mill ramping for the automotive space? Trying to get a sense for some other puts and takes within the full year guidance.

Thank you very much for the question, Bill. I start and let Jack complete. Let me start on the market side, maybe. I think we believe that packaging is going to remain a good driver of growth for us going into next year. We see both regions, U.S. and Europe with solid performance. And we have been having quite a good turnaround in our Muscle Shoals operations. And so we have been growing on the packaging side, and we expect to continue to grow. On the automotive side, I think we have a very mixed picture between the U.S. and Europe. The U.S. seems to be rather stable. But remember, we do — we only have one continuous annealing line in the U.S. So our capacity on the rolled product side is limited to this one line. We have seen nice benefits in Q4 from this unfortunate event that happened in the U.S. supply chain. And we've also had benefits in Europe, which we expect to last until the first half of 2026. As you know, the European automotive market has remained weak, and we have not seen any change. It seems that the market has bottomed out, but it's very hard to predict at this point in time. On the aerospace side, we see the business as steady. We see quite a good and strong mix on the aerospace products today in 2026. We have a little bit more visibility today than we had during our last call on '26 and maybe also 2027. We feel that military jets and space is going to continue to grow and be positive for us. Just as a reminder, we are also going to get our new Airware casthouse that will ramp up towards the end of this year. So most of the benefit you should expect coming in — starting to come in 2027 and not this year, but we are fully on track with the expansion of our Airware capacities and capabilities. I think on the more negative side is maybe that industrial markets and specialty markets in Europe remain weak. We also feel they have bottomed out, but we do not see a recovery coming in Europe as of yet. So I think there's a good mixture of positives and also some uncertainties in the market that we see for 2026. On the recycling side, we continue to expand our recycling with the investments we've made in the past and the strong operating performance that we also had in Q4. So it was not just because of scrap spreads, but also strong operating performance, and we expect that to continue in 2026. As Jack already explained, the second half scrap spreads may be less favorable. So this is something that we will update as we go along. Important also to note that inflationary pressures are continuing. That's why we are very focused on cost control and controlling what we can control in this fluid environment, market environment that we're experiencing. And with our Vision 2028 program, we want to underpin our roadmap to 2028 in terms of operating efficiencies, which is something that we need to focus on every year.

Okay. Great. Maybe it's a little bit early days, but there's been some news here about some potential tariff relief on downstream or derivative products. Trying to get a sense of maybe if there's any overlap with your own product suite that you sell into the U.S. What are you hearing on the ground? And I guess, specifically, is there any risk if there's relief on derivative products that, that could have some impact on your business? Any sort of thoughts would be helpful.

I think the situation remains very fluid as it comes to tariffs. So with the information we are having today, we do not see any impact on us. And we continue to believe that tariffs are a net positive for us given that we will have stronger demand within the North American market.

Our next question comes from Mike McNulty with Deutsche Bank.

This is Corinne. Can you hear me?

Yes, Corinne.

So maybe a few questions. And first of all, congratulations. I mean, this is an amazing quarter and a pretty good outlook what you're giving us here. Can you talk maybe about the cadence that we can expect in terms of EBITDA and free cash flow? And then the second question, Ingrid, if you can go back on the Vision 2028. I think we know that you're probably going to focus quite a lot on cost control, but I'm interested to hear more about the operational efficiencies and especially in terms of debottlenecking, like where are the opportunity that you're seeing in which market?

Thank you for the question. So I'll start, Corinne, and I appreciate the comments. I'll start on the cadence question and then Ingrid can help out on the Vision '28. So in terms of '26 cadence for EBITDA, I think as you know, Q1 and first half, typically, there's seasonality in our business. So from a seasonality perspective, they tend to be stronger than the second half. That's normal course. Now for '26, I've mentioned about the incremental benefits we expect to see in the first quarter from favorable recycling economics, right, recycling profits. So that should come in the first quarter. And on top of it, we expect to see a full quarter of benefits related to the automotive supply due to the unfortunate fire that happened at one of our competitors' plants last year. So we should see a full quarter benefit. So Q1 is set up nicely, and it should be stronger than Q4 of 2025 based on the current expectation. And then from a free cash flow perspective, typically, we build working capital in the first quarter and then into the first half of the year, and then we would release working capital. So that gives you an idea on the cadence for free cash flow.

Thanks, Corinne. So in terms of Vision 2028, this is a program that is really going to support our 2028 target. We have net productivity assumed in our bridge, and this program is there to support achieving those numbers. So in terms of major pillars, we're certainly targeting asset reliability. You see when Muscle Shoals is running well that it's a very important driver of profitability for us. So asset reliability remains an opportunity across our system, which will support the throughput maximization. And it goes along with the portfolio optimization of the products that we make today. Given that some markets are rather weak and others have continued growth ahead of us, we want to better optimize how we are using our assets, and this project is going to help us work more on cross qualification so that we optimize our overall footprint and not just optimize one site. So asset reliability throughput and optimized load, we have debottlenecking activities that are part of our bridge to 2028 with some limited investment that is embedded in our numbers. And then on top of it, I think we also have still opportunity to improve recycling and metal cost reduction. These are really going to be the focus areas of this program. In terms of which markets additional capacity should be going to, I think it's clear from what we see in the market, it's on the packaging side. So can sheet, we would continue to like to grow with the market in both regions. And then obviously, on the aerospace side, as this is our highest margin product. And with the new casthouse coming in on the aero side, we would like to continue to grow this business for space, military, but also commercial aviation. And we have invested in some finishing capability in our sites that will allow us to support the ramp of the aerospace that is expected to come somewhere around '27.

Our next question comes from indiscernible with Wells Fargo.

I think I'm the only person from Wells Fargo. This is Timna. I hope you all are doing well. I wanted to dig down back to Katja's question, if I could. Just if you look at the second half cadence and annualize it, that's above where the midpoint is on your guidance. So just trying to really understand what takes a step down, maybe more in the second half. Can you help elaborate on that and please give us the assumptions on the Midwest premium and scrap spread that's baked into your guidance?

So I'll start. So the way to think about it is Q4 '25, we've seen a fairly substantial amount of metal benefits, as I mentioned previously, right? But then the first half is quite challenged. Then from a relative comparison perspective as we go through the year, Q1 of '25 was extremely weak. Q2 was also weak. So the incremental benefits on the metal side, you would expect it to kind of to be more significant in the first half of 2026. I think that's one point. Then the other piece of it is we have more certainty, more visibility. Obviously, as we stand here today in February, looking at Q1 and into the first half of the year and some of the markets, the visibility there is not as certain into the second half.

Okay. So does that mean that you have assumption of the Midwest premium and scrap spreads stronger in the first half than the second half? I was hoping for quantification, but even if we just know that, that's the way to think about it would be helpful.

I think there is more volume consumption — volume that's locked in the first quarter relative to the future quarters. So we have more exposure.

Got you. And then if I could, we're hearing a bit about demand destruction, a little bit of switching to steel away from aluminum in some auto and tractor trailer applications, but also opportunities for aluminum to take share from copper. So I was hoping you could comment on that. And along those same lines, would be great to get any thoughts on the CBAM impact as there were some public quotes from Constellium on that topic recently.

Let me start, Timna. Regarding aluminum substitution in the automotive sector, we actually haven't seen any evidence of that, especially not related to the recent outage in North America. Changing design takes considerable time and is very expensive, and we have developed many platform-specific products. Typically, once you're committed to a program or platform, substitutions don't really occur. We haven't noticed any impact or heard any discussions from our customers about substituting aluminum with steel. The low demand for trailer bills is primarily due to the current economic climate. However, we don't foresee a shift because the trends towards lightweight materials, enhanced safety, and fuel efficiency are here to stay. Thus, we are not concerned about such changes in the automotive or transportation markets. Regarding copper, I’m not aware of any material substitutions specifically related to copper. In the past, we’ve been able to substitute some materials with our high-performance alloys in the aerospace sector, but that doesn't particularly apply to copper. Regarding CBAM, although it has been slightly adjusted, we still view it as negative for the European industry. There is a need for a more level playing field for imports into Europe, which is not adequately addressed in its current form. CBAM will likely be reflected in the regional premium in Europe, which is unfavorable for exporters facing higher metal prices. We primarily produce locally for local markets, so we are not directly impacted. However, the current design of CBAM is flawed and won’t effectively prevent carbon leakage. It could lead to challenges with resource management and the import of materials based on recycled content that’s hard to verify. As an industry, we continue to oppose its current design and are collaborating with industry associations, such as European aluminum, to advocate for necessary changes.

I would now like to turn the call back over to Ingrid Joerg, CEO of Constellium, for any closing remarks.

Well, thank you, everybody, for your interest in Constellium. As you see, we have delivered strong results in 2025. And today, we provided a strong outlook for 2026. We are very happy with the steps that we are making towards our 2028 targets, and we look forward to updating you on our progress in April. Thank you very much, everyone.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.